SEC News Digest

Issue 2012-183 September 20, 2012

Commission Announcements

SEC to Hold Annual Government-Business Forum on Small Business Capital Formation

The Securities and Exchange Commission today announced that it will hold its annual SEC Government-Business Forum on Small Business Capital Formation on November 15 at its Washington, D.C. headquarters.

This year’s forum will begin with panel discussions on the implementation of the recently enacted Jumpstart Our Business Startups Act, or JOBS Act, and on small business capital formation issues not addressed by the JOBS Act. During the afternoon, participants will work in groups to formulate specific policy recommendations.

The forum begins at 9 a.m. ET with the panel discussions, which will be webcast live on the SEC's website. The afternoon breakout group sessions will be open to the public and accessible by teleconference, but will not be webcast. Anyone wishing to participate in a breakout group, either in person or by teleconference, must register online by November 12.

The names of panel participants and the full agenda for the forum will be announced at a later date and posted on the SEC's website. Members of the public are invited to make suggestions for recommendations or topics to be discussed at the forum. These suggestions, and any questions about the forum, should be e-mailed to the SEC's Office of Small Business Policy at SmallBusiness@sec.gov. For more information, call (202) 551-3460. (Press Rel. 2012-194)

Commission Meetings

Closed Meeting on Thursday, September 27, 2012 at 2:00 p.m.

The subject matter of the Closed Meeting scheduled for Thursday, September 27, 2012 will be: institution and settlement of injunctive actions; institution and settlement of administrative proceedings; and other matters relating to enforcement proceedings.

At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact: The Office of the Secretary at (202) 551-5400.

Enforcement Proceedings

SEC Charges Three in North Carolina With Insider Trading

Early Cooperator Receives Lesser Penalty

The Securities and Exchange Commission today charged a former member of the board of directors at a North Carolina-based insurance company with illegally tipping inside information about an impending merger.

The SEC alleges that H. Thomas Davis, Jr., who has a home in Wilmington N.C., breached his fiduciary duty to Mercer Insurance Group and its shareholders when he shared confidential details about the company’s negotiations to be acquired by United Fire. Davis tipped his friend and business associate Mark W. Baggett with the nonpublic information, and Baggett later tipped his golfing partner Kenneth F. Wrangell. Baggett and Wrangell, who both live in Wilmington, made more than $83,000 in illicit profits when they traded on that confidential information illegally.

When contacted by SEC investigators about his suspicious trading, Wrangell promptly offered significant cooperation. He provided truthful details acknowledging his own trading and entered into a cooperation agreement that resulted in direct evidence being quickly developed against Baggett and Davis. This cooperation enabled the SEC to swiftly reach settlements with all three individuals to recover ill-gotten monetary gains.

“By making the choice to cooperate with the SEC and voluntarily provide all of the necessary evidence at the outset of the investigation, Wrangell saved the SEC time and resources and himself a larger penalty,” said William P. Hicks, Associate Director in the SEC’s Atlanta Regional Office.

The SEC’s complaints against Davis and Wrangell were filed in U.S. District Court for the Eastern District of North Carolina, and the complaint against Baggett was filed in U.S. District Court for the Northern District of Georgia. According to the complaints, Davis was privy to Mercer’s negotiations in the latter part of 2010 to be acquired by United Fire. In October and November, Davis tipped Baggett with nonpublic information about the impending merger, enabling Baggett to stockpile 4,426 shares of Mercer as they moved toward the acquisition date. Baggett also tipped Wrangell with advance details about the merger, and Wrangell subsequently purchased 4,500 shares of Mercer stock. After the markets closed on November 30, Mercer and United Fire publicly announced their entry into the merger agreement. Shares for Mercer stock rose nearly 50 percent the next day, and Baggett and Wrangell immediately sold their holdings for illicit profits of $41,584.45 and $42,521.55 respectively.

The SEC’s complaints allege that Davis, Baggett, and Wrangell violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. In settling the SEC’s charges, Davis agreed to be jointly and severally liable for disgorgement of Baggett’s insider trading profits of $41,584.45 plus prejudgment interest as well as to pay a penalty of $41,584.45. Davis also agreed to be barred from serving as an officer or director of a publicly-traded company. Baggett agreed to pay disgorgement and a penalty in amounts that will be determined by the court. Wrangell agreed to fully disgorge his ill-gotten gains of $42,521.55 plus prejudgment interest. Due to his extensive cooperation, the additional penalty that Wrangell is required to pay on top of that disgorgement amount has been reduced to $11,380.39. All three neither admit nor deny the allegations, and their settlements are subject to court approval.

The SEC’s investigation was conducted in its Atlanta Regional Office by Assistant Regional Director Aaron W. Lipson, and the litigation has been led by Senior Trial Counsel Paul Kim. The SEC thanks the Financial Industry Regulatory Authority (FINRA) for its assistance in this matter. (Press Rel. 2012-193)

SEC Freezes Assets of Insider Trader in Burger King Stock

The Securities and Exchange Commission today obtained an emergency court order to freeze the assets of a stockbroker who used nonpublic information from a customer and engaged in insider trading ahead of Burger King’s announcement that it was being acquired by a New York private equity firm.

The SEC alleges that Waldyr Da Silva Prado Neto, a citizen of Brazil who was working for Wells Fargo in Miami, learned about the impending acquisition from a brokerage customer who invested at least $50 million in a fund managed by private equity firm 3G Capital Partners Ltd. and used to acquire Burger King in 2010. Prado misused the confidential information to illegally trade in Burger King stock for $175,000 in illicit profits, and he tipped others living in Brazil and elsewhere who also traded on the nonpublic information.

The SEC obtained the asset freeze in U.S. District Court for the Southern District of New York. The agency took the emergency action to prevent Prado from transferring his assets outside of U.S. jurisdiction. Prado recently abandoned his most current job at Morgan Stanley Smith Barney, put his Miami home up for sale, and began transferring all of his assets out of the country.

“Prado’s emails and other communications may have been sent from Brazil and written in Portuguese, but our commitment to prosecute illegal insider trading on U.S. markets knows no geographic or language barrier,” said Sanjay Wadhwa, Deputy Chief of the SEC Enforcement Division’s Market Abuse Unit and Associate Director of the New York Regional Office. “Prado may have fled the country to evade justice, but our action today ensures that he will have to appear in a U.S. court if he wants his assets unfrozen.”

According to the SEC’s complaint, Prado’s insider trading in Burger King stock occurred from May 17 to Sept. 1, 2010. At the time, Prado was the representative on the account used by the customer to transfer his investment to 3G Capital. The customer had been with Prado for more than 10 years and often shared his confidential financial information with the understanding that it was to remain confidential. Prado had repeated contact with the customer by phone and e-mail as well as in person in Brazil during the time period that Prado traded Burger King securities.

The SEC alleges that Prado began his illegal trading while on a business trip to Brazil, during which he sent an e-mail to a friend that – translated from Portuguese – read, “I’m in Brazil with information that cannot be sent by email. You can’t miss it….” Prado later told his friend on a phone call that night that he heard 3G Capital was going to take Burger King private. The friend, a hedge fund manager in Miami, warned Prado that he should not trade on this information and should not encourage any of his customers to trade either.

According to the SEC’s complaint, Prado went on to tip at least four of his customers who eventually traded in Burger King stock based on nonpublic information about the impending acquisition. For example, just minutes after Prado sent the May 17 e-mail to his friend in Miami, he sent an e-mail to one of those customers which, again translated from Portuguese, read, “ … if you are around call me at the hotel … I have some info…You have to hear this.” A 10-minute phone conversation followed, and the customer purchased out-of-the-money Burger King call options during the next two days. In August 2010 Prado was on another business trip to Brazil, the same customer sent Prado an e-mail which translated to, “[i]s the sandwich deal going to happen?” Prado replied, “Vai sim,” which means, “Yes it’s going to happen.” He continued, “[e]verything is 100% under control. I was embarrassed to ask about timing. The last ‘vol’ got in the way.” Following these e-mails, the customer – identified as Tippee A in the SEC’s complaint – made additional purchases in Burger King call options. The customer’s total insider trading profits amounted to more than $1.68 million.

The SEC’s complaint against Prado seeks a permanent injunction from violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder, disgorgement with prejudgment interest and monetary penalties.

The SEC’s investigation, which is continuing, has been conducted by Megan Bergstrom, David Brown, and Diana Tani in Los Angeles, and Charles D. Riely in New York, who are members of the SEC Enforcement Division’s Market Abuse Unit. The investigation was supervised by Unit Chief Daniel M. Hawke and Deputy Chief Sanjay Wadhwa. The SEC appreciates the assistance of the Comissão de Valores Mobliliários (Securities and Exchange Commission of Brazil), Options Regulatory Surveillance Authority, and Financial Industry Regulatory Authority (FINRA). (Press Rel. 2012-195)

In the Matter of James F. Turner II

The United States Securities and Exchange Commission announced the issuance of an Order Instituting Administrative Proceedings Pursuant to Section 203(f) of the Investment Advisers Act of 1940, Making Findings and Imposing Remedial Sanctions against James F. Turner II. The Order finds that on August 29, 2012, a final judgment was entered by consent against Turner, permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933, Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder in the civil action entitled Securities and Exchange Commission v. Clay Capital Management, LLC, et al., Case No. 2:11-cv-05020, in the United States District Court for the District of New Jersey.

In the Order, the Commission finds that the Commission’s complaint alleged that Turner engaged in insider trading in the securities of Autodesk, Inc., Moldflow Corporation, and Salesforce.com, Inc. The Commission’s complaint also alleged that Turner obtained material nonpublic information from his brother-in-law, an Autodesk employee, about Autodesk’s earnings in advance of Autodesk’s public earnings announcement in February 2008 and about Autodesk’s planned acquisition of Moldflow ahead of the public merger announcement in May 2008. The Commission’s complaint further alleged that Turner obtained material nonpublic information about Salesforce’s earnings from his close friend, a Salesforce employee, in advance of Salesforce’s public earnings announcement in February 2008. The Commission’s complaint alleged that Turner traded on the basis of the material nonpublic information for the Clay Fund’s accounts, his personal accounts and his family members’ accounts, and that Turner also recommended that other friends and family members trade the same securities. The Commission’s complaint also alleged that, in total, the illicit trading generated gains of nearly $3.9 million.

In the Order, the Commission also finds that on December 19, 2011, Turner pled guilty to securities fraud in violation of Title 15 United States Code, Sections 78j(b) and 78ff, and Title 17, Code of Federal Regulations, Section 240.10b-5, before the United States District Court for the District of New Jersey, in United States v. James Turner, Crim. No. 2:11-cr-00868. On April 16, 2012, a judgment in the criminal case was entered against Turner. He was sentenced to a prison term of twelve months followed by three years of supervised release and ordered to pay a fine in the amount of $25,000.

Based on the above, the Order bars Turner from association with any broker, dealer, investment adviser, municipal securities dealer, or transfer agent. Turner consented to the issuance of the Order. (Rel. IA-3471; File No. 3-15035)

In the Matter of Alero Odell Mack, Jr.

On September 19, 2012, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 203(f) of the Investment Advisers Act of 1940 (Advisers Act) and Notice of Hearing (Order) against Alero Odell Mack, Jr. According to the Order, the Division of Enforcement alleges that Mack, age 47, resides in Los Angeles, CA. Respondent controlled and managed Easy Equity Asset Management, Inc., Easy Equity Partners, L.P., Easy Equity Management, L.P., an investment adviser registered with the State of California, Alero Equities The Real Estate Company, L.L.C., and Alero I.X. Corporation. On Aug. 7, 2012, a final judgment was entered against Mack, permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1), (2), and (4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder, in the civil action entitled SEC v. Alero Odell Mack, Jr., et al. Civil Action Number CV 10-8383 DSF (PJWx), in the United States District Court for the Central District of California.

According to the Order, the Division of Enforcement alleges that the Commission’s complaint alleged that, from 2007 through as late as March 2010, Mack obtained investor funds through various fraudulent investment schemes that primarily involved the offer and sale of investments in various purported hedge funds, as well as in an investment adviser to a hedge fund. In total, Mack, along with other defendants, raised approximately $4 million from at least 25 investors in California and Arizona.

A hearing before an administrative law judge will be scheduled to determine whether the allegations in the Order are true, to provide Mack an opportunity to respond to these allegations, and to determine what, if any, remedial action is appropriate in the public interest. The Commission ordered that the Administrative Law Judge issue an initial decision not later than 210 days from the date of service of the Order. (Rel. IA-3472; File No. 3-15036)

In the Matter of Steven Y. Moskowitz

The United States Securities and Exchange Commission (Commission) announced the issuance of an Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions (Order) against Steven Y. Moskowitz (Moskowitz). The Order finds that from 2002 until 2010, Moskowitz served as the Chief Financial Officer, Chief Operating Officer, Chief Accounting Officer, and Secretary of Spongetech Delivery Systems, Inc. (Spongetech). Spongetech was, at all relevant times, a Delaware corporation with its principal place of business in New York, New York, that sold soap-filled sponges.

On June 12, 2012, a judgment was entered against Moskowitz, by consent, in the civil action entitled SEC v. Spongetech Delivery Systems, Inc., et al., Civil Action No. 10-2031, in the United States District Court for the Eastern District of New York. The judgment permanently enjoined Moskowitz from violations of Sections 5 and 17(a) of the Securities Act of 1933 (Securities Act), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act), and Exchange Act Rules 10b-5, 13b2-1, 13b2-2, and 15d-14, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 15(d) of the Exchange Act and Exchange Act Rules 12b-20, 13a-13, 15d-1, and 15d-13. The judgment also, among other things, barred Moskowitz from serving as an officer or director of a public company, and engaging in any offering of penny stock pursuant to Securities Act Section 20(g) and Exchange Act Section 21(d)(6).

The Commission’s complaint alleged that from at least April 2007, Moskowitz and others engaged in a scheme to increase demand illegally for, and profit from, the unregistered sale of publicly-traded stock in Spongetech by, among other things, “pumping” up demand for Spongetech stock through false public statements about non-existent Spongetech customers, fictitious sales orders, and phony revenue. They also repeatedly and fraudulently understated the number of Spongetech’s outstanding shares in press releases and public filings. The purpose of flooding the market with false public information was to fraudulently inflate the price for Spongetech shares so Moskowitz and others could then “dump” the shares by illegally selling them to the public through affiliated entities in unregistered transactions. Among other things, the complaint further alleged that Spongetech, at the direction of Moskowitz and a co-defendant, filed periodic reports with the Commission that contained materially false and misleading statements and materially overstated revenues, created materially false purchase orders, invoices, and other documents, and failed to ensure that Spongetech maintained accurate books and records or implemented effective internal controls.

Based on the entry of the permanent injunction described above, the Order suspends Moskowitz from appearing or practicing before the Commission as an accountant. Moskowitz consented to the issuance of the Order without admitting or denying any of the findings in the Order, except he admitted to the entry of the injunction. (Rel. 34-67899; AAE Rel. 3406; File No. 3-15037)

SEC Obtains Final Judgments Ordering More Than $135 Million in Monetary Relief in “Green” Investment Ponzi Scheme

The Securities and Exchange Commission announced that on September 13, 2012, the Honorable Christine M. Arguello, U.S. District Court Judge for the District of Colorado, entered final judgments against Troy B. Wragg, Amanda E. Knorr, Speed of Wealth, LLC, Wayde M. McKelvy, and Donna M. McKelvy ordering disgorgement, prejudgment interest, and civil penalties totaling more than $135 million. The Court ordered Wragg and Knorr to pay $37,031,035.36 in disgorgement plus interest of $3,713,772.06 jointly and severally with Mantria Corporation and a civil penalty of $37,031,035.36 each; Speed of Wealth and Wayde McKelvy to pay $6,273,632.78 in disgorgement plus interest of $869,141.87 jointly and severally and a civil penalty of $6,273,632.78 each; and Donna McKelvy to pay $429,731.84 in disgorgement plus interest of $55,172.93 and a civil penalty of $214,865.92.

The parties were originally charged in a Complaint filed on November 17, 2009. The Complaint alleged that Wayde and Donna McKelvy, through their Denver-based company Speed of Wealth LLC, as well as Mantria executives Wragg and Knorr, raised funds for numerous Mantria “green” initiatives such as a supposed “carbon negative” housing community in rural Tennessee and a “biochar” charcoal substitute made from organic waste. The SEC alleged that Mantria’s “green” representations were fraudulent and that investors were falsely promised enormous returns on their investments ranging from 17 percent to “hundreds of percent” annually. Mantria’s environmental initiatives did not generate any significant cash, and any returns paid to investors were funded almost exclusively from other investors’ funds. In addition, none of the relevant offerings were registered with the Commission, nor were any of the defendants registered as a broker-dealer or associated with a registered broker-dealer. [SEC v. Mantria Corporation, Troy B. Wragg, Amanda E. Knorr, Speed of Wealth, LLC, Wayde M. McKelvy, and Donna M. McKelvy, Case No. 09-cv-02676-CMA-MJW] (LR-22483)

Investment Company Act Releases

Financial Investors Trust, et al.

A notice has been issued giving interested persons until October 15, 2012, to request a hearing on an application filed by Financial Investors Trust, et al. for an order under Section 12(d)(1)(J) of the Investment Company Act of 1940 (Act) for an exemption from Sections 12(d)(1)(A) and (B) of the Act, under Sections 6(c) and 17(b) of the Act for an exemption from Sections 17(a)(1) and 17(a)(2) of the Act, and under Section 6(c) of the Act for an exemption from Rule 12d1-2(a) under the Act. The requested order would (a) permit certain registered open-end management investment companies that operate as “funds of funds” to acquire shares of other registered open-end management investment companies and unit investment trusts that are within and outside the same group of investment companies as the acquiring investment companies, and (b) permit funds of funds relying on Rule 12d1-2 under the Act to invest in certain financial instruments. (Rel. IC-30205 - September 18)

Neuberger Berman Alternative Funds, et al.

A notice has been issued giving interested persons until October 12, 2012to request a hearing on an application filed by Neuberger Berman Alternative Funds, et al., for an order exempting applicants from Section 15(a) of the Investment Company Act of 1940 (Act) and Rule 18f-2 under the Act. The order would permit the applicants to enter into and materially amend subadvisory agreements without shareholder approval and would grant relief from certain disclosure requirements. (Rel. IC-30206 - September 18)

Self-Regulatory Organizations

Approval of Proposed Rule Change

The Commission granted approval of a proposed rule change (SR-BATS-2012-030) submitted by BATS Exchange, Inc. pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4 thereunder to amend BATS Rule 14.11, Entitled “Other Securities.” Publication is expected in the Federal Register during the week of September 24. (Rel. 34-67888)

Designation of Longer Period for Commission Action on Proposed Rule Change

The Commission has designated a longer period for Commission action under Section 19(b)(2) of the Securities Exchange Act of 1934 on a proposed rule change (SR-CBOE-2012-071) filed by the Chicago Board Options Exchange, Incorporated to increase the maximum term for LEAPS to fifteen years. Publication is expected in the Federal Register during the week of September 24. (Rel. 34-67892)

Immediate Effectiveness of Proposed Rule Change

A proposed rule change filed by Financial Industry Regulatory Authority, Inc. to delete FINRA Rule 7640A (Late Fees) (SR-FINRA-2012-043) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of September 24. (Rel. 34-67880)

Proposed Rule Changes

NYSE Arca, Inc. filed with the Securities and Exchange Commission a proposed rule change (SR-NYSEArca-2012-101) pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 to list and trade shares of the PowerShares S&P 500 Downside Hedged Portfolio under NYSE Arca Equities Rule 8.600. Publication is expected in the Federal Register during the week of September 24. (Rel. 34-67881)

NYSE Arca, Inc. filed with the Securities and Exchange Commission a proposed rule change (SR-NYSEArca-2012-102) pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 relating to the listing and trading of twelve funds of the Direxion Shares ETF Trust II under NYSE Arca Equities Rule 8.200. Publication is expected in the Federal Register during the week of September 24. (Rel. 34-67882)

Securities Act Registrations

The following registration statements have been filed with the SEC under the Securities Act of 1933. The reported information appears as follows: Form, Name, Address and Phone Number (if available) of the issuer of the security; Title and the number and/or face amount of the securities being offered; Name of the managing underwriter or depositor (if applicable); File number and date filed; Assigned Branch; and a designation if the statement is a New Issue.

Amendments to the Registrant's Code of Ethics, or Waiver of a Provision of the Code of Ethics

5.06

Change in Shell Company Status

6.01

ABS Informational and Computational Material.

6.02

Change of Servicer or Trustee.

6.03

Change in Credit Enhancement or Other External Support.

6.04

Failure to Make a Required Distribution.

6.05

Securities Act Updating Disclosure.

7.01

Regulation FD Disclosure

8.01

Other Events

9.01

Financial Statements and Exhibits

8-K reports may be viewed in person in the Commission's Public Reference Branch at 100 F Street, N.E., Washington, D.C. To obtain paper copies, please refer to information on the Commission's Web site at http://www.sec.gov/answers/publicdocs.htm. In most cases, you can view and download this information by using the search function located at http://www.sec.gov/edgar/searchedgar/companysearch.html.